Agricultural Law, Taxation & Policy: Key Issues and Developments - - PowerPoint PPT Presentation

Agricultural Law, Taxation & Policy: Key Issues and Developments

By D. Uchtmann & B. Endres, Gary Hoff, and Bob Hauser

Presented at the Farm Income 2004 Programs

Uchtmann & Endres, Hoff, Hauser 2

Agricultural Law Topics

• Changes in the IL Grain Code
• Liability Issues in Growing

Tx Crops

• Non-StarLink Farmer

Litigation

Presented by Don Uchtmann & Bryan Endres Professor & Asst. Professor

• f Agricultural Law

Uchtmann & Endres, Hoff, Hauser 3

Background: IL Grain Code Created The IL Grain Insurance Fund

(FDIC Analogy)

FDIC: deposits of money are insured if the member bank fails IGIF: grain deposits (and qualifying grain sales if seller unpaid) insured if IL-licensed elevator fails

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IL Grain Code Changes

The amendment gives more protection to farmers in the event of IL grain dealer or warehouse failure, But the added protection comes at a cost.

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Increased Farmer Protection

(Lessons from Ty-Walk)

• Size of IGIF: $3 Mil. → $6 Mil.
• Some important changes:

– Higher Payment Limits for claims paid at 85%, i.e., $100,000 limit → $250,000 limit – Price Later Contracts covered for longer time, i.e., 270 day max → 365 day max (after later of date of contract or date of delivery)

• See Checklist of “good practices” for farmers

Uchtmann & Endres, Hoff, Hauser 6

Greater Protection Through Increased Oversight

• Oversight of “farmer

marketing programs” by the IDOA clarified/expanded

• Riskiness of marketing

programs offered → Intensity of annual examination by IDOA

Uchtmann & Endres, Hoff, Hauser 7

Three Levels of Examination

Minimal market risk → Basic Examination Increased risk → Intermediate Exam The most risk → Advanced Exam

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Skip to Slide 12, P. 124 (Bottom)

If Licensee . . .

• Has discretionary

trading authority from producers,

• Uses “premium offer”

type contracts, or

• Has contracts with

producers that cover multiple crop years

Then exam includes:

• Everything done if low
• r middle risk,
• Evaluation of market risk

exposure and use of appropriate risk management tools, and

• Adequacy of internal

controls

Uchtmann & Endres, Hoff, Hauser 9

Outside Experts/Regulatory Fund

For Intermediate or Advanced Examinations:

• Department is authorized to engage

– Outside accounting experts, and – Grain risk management experts

• Regulatory Fund may be tapped to pay for these
• utside experts
• New Regulatory Fund is funded by, e.g.,

(a) Increases in license application fees ($50 increase) and annual license renewal fees ($100 increase), and (b) Fees for each required certificate. 240 ILCS 40/35-5

10

Greater Protection: Reserve Fund

$0 $1 $2 $3 $4 $5 $6 BEFORE NEW LAW AFTER NEW LAW IGIF Reserve Fund* *Available to pay claims

if IGIF depleted; State will grant $2 mil. as “seed money”

Uchtmann & Endres, Hoff, Hauser 11

Reserve Fund (New § 30-25)

• History: IGIF borrowed $4 mil. from State to pay
• bligations created by Ty-Walk failure
• New Law: When loan repaid, State pays $2 mil.

– Seed money for Reserve Fund

• This “Reserve Fund” used to pay claims when

IGIF insufficient

• Reserve Fund replenished with, e.g., IGIF

assessments

• Good News: Income from Reserve Fund to IGIF

Uchtmann & Endres, Hoff, Hauser 12

Summary of Added Protection

• More Resources available to pay claims

– $6 mil IGIF (when Fund “recharged”) – $2 mil Reserve Fund (when loan repaid)

• More Producer Claims eligible for payment

– $250,000 limit for Claims paid @ 85% – Price Later Contracts “covered” for 365 days – Clarification of some rules, e.g., 160-day rule

• Greater Department Oversight of Farmer

Marketing Programs, etc.

Uchtmann & Endres, Hoff, Hauser 13

The Added IGIF Protection Comes At a Price

Beginning in January 2004, 1st sellers of grain will pay IGIF Assessments . . .

– for the 1st time, – when they “settle for” grain sold to an IL-licensed facility

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Assessments on 1st Sellers

• Rate: 0.0004

– I.e., $4 for each $10,000 of grain “settled for”

• Mechanics:

– Grain dealer collects assessment at settlement – Remits the assessment quarterly to the Ill. Department of Agriculture

• Assessment Cycle:

– 12 Months “On” and 6 months “Off”

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July – Sept (off) July - Sept July - Sept Oct – Dec (off) Oct - Dec Oct - Dec April - Jun April – Jun (off) April - Jun Jan - Mar Jan – Mar (off) Jan – Mar 2006 2005 2004

12 Months “On” – 6 Months “Off” IGIF Assessment Cycle

Uchtmann & Endres, Hoff, Hauser 16

Marketing Question

• Will the assessment
• f $4 per $10,000 of

grain “settled for” after December 31 cause you to “settle” for sales before January 1?

17

Estimated Dollars Raised for IGIF

Per Assessment Cycle (in $1000s)

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Old Law New Law Licensees ($800,000) 1st Sellers ($2,000,000) Lenders* ($250,000)

*Lenders holding warehouse receipts to secure loans to licensees also pay assessments for the 1st time starting January 2004

Uchtmann & Endres, Hoff, Hauser 18

Policy Issue: Are Farmers Paying Too Much?

• $2,000,000 v. $800,000 or $250,000?
• Relatively high burden per assessment

cycle mitigated by FEWER cycles

• See supplemental handout

– Farmers pay until IGIF hits $3,000,000 – Elevators, Bankers pay if < $6,000,000

• IL: $2 mil. to “seed” Reserve Fund

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Liability Issues When Growing Tx Crops

• What are the

liability Risks?

• What actions

might reduce these risks?

Uchtmann & Endres, Hoff, Hauser 20

E.g., Rootworm Resistant Corn

• YieldGuard Rootworm Bt corn may be a

popular planting choice next Spring

• It is approved for use in the USA, but not in

European Union

• Pollen could drift to the fields of a neighbor

who sells corn to buyers that do not accept “unapproved in EU” corn varieties

• Who would be liable for what?

Uchtmann & Endres, Hoff, Hauser 21

Liability Risks

• Applicable law is not well-developed,

but we can probably say . . .

• Farmer v. Farmer suits for economic

losses arising from Tx pollen drift are not likely to be successful, absent new developments in the law, PROVIDED . . .

Uchtmann & Endres, Hoff, Hauser 22

Probably no liability provided:

• Farmer fulfills all required conditions on the

label and licensing agreement,

• Tx crop grown in accordance with any state
• r local laws regarding such crops (no

special rules under IL law), and

• Intentional conduct (e.g. Hatfield v.

McCoy)

Uchtmann & Endres, Hoff, Hauser 23

Caveat: Legal theories that might support plaintiff’s case do exist

For Example . . .

• Trespass
• Nuisance
• Negligence
• Others

Uchtmann & Endres, Hoff, Hauser 24

Possible Risk-reducing steps:

Farmer gives notice, i.e., tells neighbors who sell into export channels (and who ask?)

(1) that Farmer is growing a variety not approved in overseas markets, and (2) where it will be planted

And . . .

Uchtmann & Endres, Hoff, Hauser 25

Potential steps, cont’d

Farmer exercises reasonable care to minimize the likelihood of pollen drift problems, e.g.,

– Maybe Farmer plants part of the 20% non-Bt refuge area as a buffer between his fields containing “unapproved in EU” varieties and Neighbor’s “bound for export” fields? – This way, the refuge also acts as a pollen- catching buffer between Farmer’s crop and the crop of his neighbor?

Uchtmann & Endres, Hoff, Hauser 26

What is “reasonable care” in this kind of setting?

• What should a

“reasonable farmer” do to prevent “unreasonable harm” to a neighbor?

• What do you think??

Uchtmann & Endres, Hoff, Hauser 27

The “Flipside” of this Issue

What about Farmers signing “No-GMO” contracts (contracts that guarantee the genetic “purity” of the crop to be sold)?

Uchtmann & Endres, Hoff, Hauser 28

Signing Contracts, Cont’d

The farmers are . . .

• 1. Contractually assuming a liability risk

beyond their control, e.g.,

• Pollen may drift into Farmer’s fields, or
• Seed may not be “genetically pure”
• 2. Limited in their ability to pass on their

contractually-created liability to the neighbor from whom pollen may have drifted

Uchtmann & Endres, Hoff, Hauser 29

What happened in this class action?

Plaintiffs’ Argument: The presence of StarLink in the year 2000 corn crop depressed the price of US corn, causing damage to all producers who sold corn.

Uchtmann & Endres, Hoff, Hauser 30

Court Approved Settlement:

Defendants pay $110 million + interest Court costs, attorney’s fees, etc. paid 1st Property Damage claims paid 2nd Corn Loss claims paid 3rd (out of residue)

Uchtmann & Endres, Hoff, Hauser 31

“Corn Loss” Claims:

–Proof of Claim due 7/31/03 –“Notice of Problem” sent to some farmers 10/15/03 –Most Responses due 11/15/03

What was your experience????

Uchtmann & Endres, Hoff, Hauser 32

Corn Loss Payments:

When coming? Amount? Form of Payment? Must Producer account to others? Who pays the taxes?

Jobs and Growth Tax Relief Reconciliation Act of 2003

By Gary Hoff Extension Tax Specialist

Uchtmann & Endres, Hoff, Hauser 34

Taxation Subtopics:

• Increased Depreciation
• Tax Planning
• Capital Gains and Losses
• Dividends
• Estate and Gift Taxes

Uchtmann & Endres, Hoff, Hauser 35

Justice Learned Hand:

“There are two systems of taxation in our country: one for the informed, and one for the uninformed.

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“Over and over again Courts have said there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. “Everybody does so, rich and poor, and all do right, for nobody owes any public duty to pay more than the law demands. “Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant [moralizing].

Uchtmann & Endres, Hoff, Hauser 37

Boom or Boondoggle

• May save substantial

tax.

• Immediate savings.
• Less regular tax
• Much of savings is
• nly a postponement.
• Ends on 1/1/2005.
• May create AMT

INCREASED DEPRECIATION

Uchtmann & Endres, Hoff, Hauser 39

New Combine

• Purchase after

5/6/2003

• Cost $233,500

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20%

Old Law

$47,339

Uchtmann & Endres, Hoff, Hauser 41

78%

New law

$181,054

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WHAT CHANGED?

• 30%/50% bonus depreciation
• IRC §179 deduction (1st year)

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50% bonus IF

• New original use property
• Acquired after May 5, 2003
• Acquired before January 1, 2005
• 3, 5, 7, 10, 15, or 20-year property

Uchtmann & Endres, Hoff, Hauser 44

EXAMPLES

No N 7/1/2003 Rental House Yes N 8/1/2003 Grain Dryer No U 6/10/2003 Tractor No N 5/1/2003 SUV Eligible N or U Acquired Purchase

Uchtmann & Endres, Hoff, Hauser 45

Machinery Shed

• Acquired February 5,

1965

• Remodeled on

October 4, 2003

• Remodeling cost

$40,000

• Only the $40,000 is

available for 50% It’s no Taj Mahal, but I got it cheap!

Uchtmann & Endres, Hoff, Hauser 46

Used Grain Bin

• Acquired from

neighbor August 7, 2003

• Paid $5,000
• Cost $3,000 to move
• Only $3,000 is

available for 50%

Uchtmann & Endres, Hoff, Hauser 47

CAUTION

• All or nothing in a class
• Mandatory unless elect out

– Can create depreciation allowed or allowable problem.

• Use of 50% will exempt the depreciation

from AMT.

Uchtmann & Endres, Hoff, Hauser 48

Section 179

• Up to $100,000 per year.

– Down to $25,000 in 2006

• Phase-out at $400,000
• New or used
• Tangible personal property used in an
• Active trade or business

Uchtmann & Endres, Hoff, Hauser 49

EXAMPLE

25,000 Reduction $100,000 Maximum 179 deduction $75,000 179 deduction allowed $25,000 Overage 400,000 Limit $425,000 2003 eligible purchases

Uchtmann & Endres, Hoff, Hauser 50

2002 PURCHASES 4,074 ILLINOIS FARMERS

4.9% > $100,001 63.5% < $25,000 31.6% = $25,001 to $100,000

Uchtmann & Endres, Hoff, Hauser 51

TRACTOR TRADE

• Initial purchase in 2000 of $100,000
• Trade in 2001 for $25,000 boot
• Trade again in 2002 for $25,000 boot
• Trade after 5/6/2003 for $25,000 boot

Uchtmann & Endres, Hoff, Hauser 52

2003 Depreciation

Before $46,647

Treasury Decision 9091

After $66,014 Cash Outlay $25,000

Uchtmann & Endres, Hoff, Hauser 53

NOTICE 2000-4

• Like-kind exchange
• Continue depreciating the unrecovered cost
• f the old asset using its original life and

method

Uchtmann & Endres, Hoff, Hauser 54

TRACTOR TRADE

• Initial purchase in 2000 of $100,000
• Trade in 2001 for $25,000 boot
• Trade again in 2002 for $25,000 boot
• Trade after 5/6/2003 for $25,000 boot

Before 2003 depreciation, basis was $105,466

TAX PLANNING

Uchtmann & Endres, Hoff, Hauser 56

BENEFIT OF CONSISTENT INCOME

• 14 year period
• $10,000 taxable income one year
• $120,000 taxable income next year
• $173,464 total tax

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BENEFIT OF CONSISTENT INCOME

• 14 year period
• $65,000 taxable income each year
• $138,180 total tax

Uchtmann & Endres, Hoff, Hauser 58

BENEFIT OF CONSISTENT INCOME

• Consistent income saved $35,284.
• Because of increasing marginal rate

59

Married Filing Jointly

311,950 35.0% 84,389 311,950 174,700 33.0% 39,097 311,950 174,700 114,650 28.0% 22,283 174,700 114,650 56,800 25.0% 7,820 114,650 56,800 14,000 15.0% 1,400 56,800 14,000 10.0% 14,000 Of the amount

• ver

Plus The tax is But not

• ver

Over If taxable income is

LONG-TERM CAPITAL GAINS

Uchtmann & Endres, Hoff, Hauser 61

CHANGE

• If in 10% or 15% marginal tax bracket,

capital gains taxed at 5%.

• If in 25% or greater marginal tax bracket,

capital gains taxed at 15%.

• Under old law capital gain rates were 8%

and 20%.

• No change in capital loss rules.

62

Married Filing Joint

56,800 - 15% 114,650 - 25% 174,700 - 28% 311,950 - 33% > 311,950 - 35% 14,000 - 10%

Taxable income $310,000 Capital gain 150,000 IF . .

Ordinary Income Capital Gain

THEN . . . $ 14,000 taxed at 10% $ 42,800 taxed at 15% $ 57,850 taxed at 25% $ 45,350 taxed at 28% $150,000 taxed at 15%

Plus AMT

63

Married Filing Joint

56,800 - 15% 114,650 - 25% 174,700 - 28% 311,950 - 33% > 311,950 - 35% 14,000 - 10%

Taxable income $65,000 Capital gain 40,000 IF

Ordinary Capital

THEN $14,000 taxed at 10% $11,000 taxed at 15% $31,800 taxed at 5% $ 8,200 taxed at 15%

Uchtmann & Endres, Hoff, Hauser 64

Eligibility Rules

• Sale or payment received after 5/5/2003.
• Sunset date of 12/31/2008.
• For sales between 1/1/2008 and 12/31/2008,

the 5% rate goes to 0%

Uchtmann & Endres, Hoff, Hauser 65

QUESTIONS

• Should I sell or use

a §1031 exchange?

– Basis issue – Management issue

DIVIDENDS

Uchtmann & Endres, Hoff, Hauser 67

OLD RULES

• Double taxation.
• Taxed as ordinary income.

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NEW RULES

• Double taxation.
• Taxed same as capital gain.
• Effective for dividends received after

12/31/2002.

• 60 day holding period.
• Sunset 12/31/2008.

Uchtmann & Endres, Hoff, Hauser 69

QUESTIONS

• Should I pay dividends from my closely

held corporation?

• Should I move my investments to stocks

paying high dividends?

Uchtmann & Endres, Hoff, Hauser 70

EXAMPLE

• Microsoft has $43

billion cash.

• Gates owns 1.2 billion

shares.

• Paid 8¢ dividend.
• Received $99.5 million.
• Saved $19.5 million of

tax.

Uchtmann & Endres, Hoff, Hauser 71

ESTATE TAXES

2,500,000 50% 1,025,800 2,500,000 2,000,000 49% 780,800 2,500,000 2,000,000 1,500,000 45% 555,800 2,000,000 1,500,000 1,250,000 43% 448,300 1,500,000 1,250,000

Of the amount

• ver

Plus The tax is But not

• ver

Over

For estates

Uchtmann & Endres, Hoff, Hauser 72

UNIFIED CREDIT

1,000,000 345,800 2011 REPEALED 2010 3,500,000 1,455,800 2009 2,000,000 780,800 2006 – 2008 1,500,000 555,800 2004 – 2005 $1,000,000 $345,800 2003 Exclusion Amount Credit Amount Year

Uchtmann & Endres, Hoff, Hauser 73

GIFTING

• Frozen at $1,000,000.
• $11,000/year.

Uchtmann & Endres, Hoff, Hauser 74

REVIEW ESTATE PLAN

• Based on gifting assets such as units of FLP
• f shares of LLC.

Uchtmann & Endres, Hoff, Hauser 75

OLDER FLP’S

• Donor maintains control.

– Sell at a discount. – Take money over time.

• Donor keeps income.

– Little or no distributions to limited partners. – Donor takes unlimited distributions.

Uchtmann & Endres, Hoff, Hauser 76

RECENT CASES

• M.B. Harper Est.; TC Memo 2002-121
• T.R. Thompson Est.; TC Memo 2002-246
• D.A. Kimbell, Sr. Est.; 2003-1 USTC ¶60,455
• A. Strangi Est.; TC Memo 2003-145
• Hackl, Sr; 7th Cir Ct of Appeals 2003-2

Uchtmann & Endres, Hoff, Hauser 77

Harper

• Formed FLP 6/14/94, died 2/1/95
• Son .4% GP was manager
• Transferred 60% to children
• FLP primarily owned securities.
• Distributions weighted heavily to Harper.

78

Thompson

• Formed 2 FLP’s 2 years before death.

– One for son – One for daughter

• GP was a corporation with Thompson
• wning 49%.
• Son had contributed substantial assets.
• Letters from advisors shown in court.
• Distributions primarily to Thompson.

Uchtmann & Endres, Hoff, Hauser 79

Kimbell

• FLP formed 2 months prior to death.
• Kimbell held 99% of LP interest.
• Kimbell held 50% of LLC that was manager
• f FLP

Uchtmann & Endres, Hoff, Hauser 80

Strangi

• Formed just prior to death.
• Son-in-law had POA and formed FLP.
• Corporate GP with Strangi owning 47%.
• (*% of Strangi’s assets transferred with

Strangi owning 99% of LP units.

• FLP paid all of Strangi’s expense and final

expense.

Uchtmann & Endres, Hoff, Hauser 81

Never let taxes override a good management decision.

Uchtmann & Endres, Hoff, Hauser 82

Agricultural Policy Topics

• Farm Bill
• WTO
• Upper Mississippi

and Illinois Rivers Energy Bill

Presented by Bob Hauser Professor of Agricultural Economics

Uchtmann & Endres, Hoff, Hauser 83

Farm Bill: Conservation Programs

• Conservation Security Program

– Conference Appropriation Bill: $41 million for ’04; cap of $3.7 billion lifted for remaining 8 years – Many expect that the actual expenditure could be more than $8 billion – The “rules” of the program being held up by

• OMB. Still seems to be wide open for use on

“working lands.” – Stay in touch for opportunities

Uchtmann & Endres, Hoff, Hauser 84

Conservation Programs, Continued

• Environmental Quality Incentives Program

(EQIP)

– Approp. Bill cuts original expenditure by $25 million for ’04 to $975 million – The interesting issue in the future will be how much of a tradeoff takes place between EQIP and CSP

Uchtmann & Endres, Hoff, Hauser 85

Conservation Programs, Continued

• Wetland Reserves Program: cap at 2.1

million acres

• Wildlife Preservation Program: $60 mill for

’04, increased to $85 for ’05

• Farmland Protection Program: $125 mill for

’04 and ’05, down a little after that

Uchtmann & Endres, Hoff, Hauser 86

Mississippi & Illinois Rivers: Lock & Dam Upgrades

• Issues date back to 1978 with Inland Waterways

Act, Lock and Dam 26, and user fees

• A lot of controversy over the past 25 years
• The current debate centers on the plan that the

Corps will be presenting in April 2004.

– Is a “dual” purpose plan covering navigation and ecosystem – Six scenarios are on the table, with the navigation upgrades ranging from $0 to $2.3 billion and the ecosystem costs ranging from $0 to $8.4 billion.

87

Upper Mississippi River System

• Includes Upper

Mississippi & Illinois Rivers

• 35 Lock & Dams:
• St. Paul to St. Louis
• Outdated,

deteriorating 600- foot Locks

Uchtmann & Endres, Hoff, Hauser 88

Lock & Dam Upgrades, cont’d

• Easier to identify and measure costs than to

identify and measure benefits

• Much of the “benefit debate” regarding

navigation has hinged on what is assumed about the shape of the demand curve for barge shipments

Uchtmann & Endres, Hoff, Hauser 89

Uchtmann & Endres, Hoff, Hauser 90

Lock & Dam Upgrades, cont’d

• My view: We’re “missing the boat” by not

paying enough attention to the location of the demand curve as opposed to it’s shape.

• That is, none of the demand scenarios

involving exports even come close to being “outside the box.”

Uchtmann & Endres, Hoff, Hauser 91

Lock & Dam Upgrades, cont’d

• Not enough attention paid to what happens

under realistic futures where:

– Major shifts among regions of the world in production, regardless total import demand – Major increases in export demand – Domestic demand for industrial use changes dramatically

Uchtmann & Endres, Hoff, Hauser 92

Farm Bill: Payment Limitations

• 2002 Farm Bill established a Commission

to study the effects of payment limits

• The Commission's August 2003 report, in

general:

– Focused on budgetary effects of recent caps as well as 25% reductions in current caps – Did not squarely address the issue of whether more restrictive caps should or should not be imposed.

Uchtmann & Endres, Hoff, Hauser 93

Payment limit effects during 2000 of $40,000 on PFC payments

0.7% 1.1% $25.7 Corn 0.5% 1.1% $14.8 Wheat 2.2% 3.8% $22.6 Cotton 4.7% 2.3% $10.3 Rice % of farmers % of PFC payments Million $

Uchtmann & Endres, Hoff, Hauser 94

General effects of tighter limits assuming no farm organization or production responses

• $40K to $30K (25% reduction) in direct

payment cap leads to a 5% reduction in payments

• $65K to $50K in CC cap leads to a 5%

reduction in payments at prices below loan rates

• Unlimited to $75K in loan program leads to

a 4% reduction under 1999-2001 prices

Uchtmann & Endres, Hoff, Hauser 95

Some of their other findings

• Current limits have little effect on land

values nationally, nor would additional limits considered. Regional effects might be felt.

• Current “tracking” system back to

individuals is poor.

• Divided on the effects of imposing an

effective limit for the loan program.

Uchtmann & Endres, Hoff, Hauser 96

Some of their recommendations

• Improve tracking of benefits to individuals

through FSA

• More research
• If changes are made, don’t make them

before the next Farm Bill, and then phased in.

Uchtmann & Endres, Hoff, Hauser 97

My opinion

• If/when payments change to Illinois

farmers, it will not be a result of payment limitations.

Uchtmann & Endres, Hoff, Hauser 98

WTO negotiations

• Think of them as focusing on three

locations for each country:

– What happens at the point of production – What happens at the export port – What happens at the import port

Uchtmann & Endres, Hoff, Hauser 99

• Point of production. Are subsidies to

producers trade distorting (green, blue, amber)?

• Point of export. What are the levels of

export subsidies (through price and/or credit), government-sanctioned monopolistic actions (state trading) and food aid?

• Point of import. What are the tariff levels

and are there any “illegal” non-tariff trade- distortion actions?

Uchtmann & Endres, Hoff, Hauser 100

United States

• Low distortions at import and export points,

but high production subsidies.

– Wants ROW to lower barriers at export/import ports (i.e., reduce export subsidies and import tariffs) – What will U.S. give up?

• Total support payments? e.g., 5% subsidy rule
• Specific commodities? e.g., cotton/rice versus

corn/wheat

• Specific tariffs?

Uchtmann & Endres, Hoff, Hauser 101

Outcomes

• When?
• Effects on FTA’s?
• Effects on Farm Bill?

– This may be the most visible, direct effect on Illinois producers – In general, for support programs it could:

• Discourage overall spending
• Discourage increases in loan rates or CC prices

102

Country-of-Origin-Labeling (COOL)

• 2002 Farm Bill requires grocery retailers to

identify beef, pork, lamb, fish, peanuts, fruits and vegetables by country of origin

• Currently in a voluntary period
• Mandatory on Sept 30, 2004 (but looks like

this will be changed to 2006)

• National (USDA) mandatory i.d. system

forbidden

• No 3rd party verification needed

103

COOL, continued

• Proponents (Some of the state livestock

associations, AFB, many fruits and vegetable associations, consumer groups, …)

– “Branding” effect: increases demand – Consumers want to know and this is the best way to provide this information, like any other labeling law – Additional records for national security, disease trace back, …

Uchtmann & Endres, Hoff, Hauser 104

COOL, continued

• Opponents (AMI, NPPC, IFB,

Administration, House Ag Chair,…):

– Costs are high, in the form of record keeping, verification, compliance, loss of exports

• Cost estimates have been all over the board (ISU

Sparks, USDA, Florida)

• USDA-GAO debate

– Little evidence that demand would increase much, but this may vary by product – Overall, 90% is domestic

Uchtmann & Endres, Hoff, Hauser 105

COOL, continued

• Opponents, continued

– Guarantees labels, but not safety or traceability – I.D. system needed with it for efficiency and defense – Liability is, legally, on retailer but, effectively on producer, with additional concerns about pass-back

• n food safety issues

– WTO violations and retaliation – Gives some countries (e.g., Canada) an advantage

Uchtmann & Endres, Hoff, Hauser 106

COOL, continued

• Opponents, continued

– Costs could be reduced considerably by just labeling imports – May encourage structural changes – Poultry producers win

Uchtmann & Endres, Hoff, Hauser 107

COOL, continued

• Concluding remarks

– House appropriation bill versus senate’s – Peterson’s “COOL Lite” – Fundamentally, this is a “branding” issue that is being treated as a “market-failure” issue

Uchtmann & Endres, Hoff, Hauser 108

The End

Agricultural Law, Taxation & Policy: Key Issues and Developments

By Uchtmann & Endres, Hoff, and Hauser Presented at the “Farm Income 2004” Programs

Uchtmann & Endres, Hoff, Hauser 109

Federal Ag Policy Issues

• Farm Bill

– Commission’s report on payment limitations

• Effects of reducing limits on expenditures
• Recommendations

– Country of Origin Labeling (COOL)

• Issues
• Proponents and opponents
• Studies by government and others
• Likely outcomes

Uchtmann & Endres, Hoff, Hauser 110

Federal Ag Policy Issues, Cont’d

(Farm Bill, Cont’d) – Conservation Programs

• Appropriations for

2003

• Appropriations for

2004?

• Issues
• – Issues and stances

by country/region – Possible outcomes – Effects

Uchtmann & Endres, Hoff, Hauser 111

Federal Ag Policy Issues, Cont’d

• Upper Mississippi

and Illinois Rivers

– Background – Upgrades under consideration – Issues underlying benefits/costs

Energy Bill

Uchtmann & Endres, Hoff, Hauser 112

Appendix Slides on WTO

• Provided by Bob Thompson

Uchtmann & Endres, Hoff, Hauser 113

OECD Producer Support Estimates, 2002, in Percent

1 New Zealand 5 Australia 18 United States 20 Canada 22 Mexico 36 European Union 59 Japan 75 Switzerland

Uchtmann & Endres, Hoff, Hauser 114

Average Producer Support in OECD Countries, 2002, in Percent

6 Wool 18 Oilseeds 20 Maize 36 Wheat 37 Beef & Veal 48 Milk 48 Sugar 80 Rice

Uchtmann & Endres, Hoff, Hauser 115

LDCs’ Own Policies Also Impede Their Development

• Corruption and/or macroeconomic instability.
• Lack of definition and/or enforcement of property

rights and contracts

• Underinvestment in public goods, such as rural

infrastructure and ag research

• Cheap food policies to keep urban consumers

quiescent – often reinforced by food aid or subsidized exports from OECD

• Lack of technology adapted to local agro-ecological

conditions (soils, climate; slope)

Uchtmann & Endres, Hoff, Hauser 116

Uruguay Round Agreement on Agriculture: Accomplishments

• Increased market access as % of consumption
• Reduced export subsidies (value & volume)
• Converted all non-tariff barriers to tariffs
• Required scientific basis for all SPS barriers
• Acknowledged that some domestic agricultural subsidies can

distort trade and categorized them by degree of trade distortion:

– “Green box” = non trade distorting investments in public goods and decoupled income transfers – “Amber box” = trade-distorting (bound and reduced) – “Blue box” = trade-distorting, but offset by production controls or set- asides

Uchtmann & Endres, Hoff, Hauser 117

Doha Round Must Do Better

• Uruguay Round established a useful framework
• But, it did little to open markets, and OECD

countries are still spending close to US$1 billion per day subsidizing their farmers

• Doha Round can and must be more ambitious than

the Uruguay Round by closing loopholes and imposing stronger controls and tighter disciplines to prevent circumvention of the intent of the agreement.

Uchtmann & Endres, Hoff, Hauser 118

Cancun Problems

• Too many too complex issues on table
• Insufficient closure prior to arrival
• Impossibility of 148 to reach consensus
• US-EU deal seen as Blair House Redux
• G-20X overplayed its hand
• Inexperienced LDC negotiators
• EU made concessions too late
• Political constraints on US & EU going further now
• Arrogance, intransigence & brinkmanship of US and EU
• Korea & Japan’s insistence on all Singapore issues

conveniently avoided addressing agriculture

Uchtmann & Endres, Hoff, Hauser 119

Cancun Issues

• Cotton became cause celebre
• US-EU vs. G-20X vs. Derbez drafts
• S&D (What’s a “developing” country?)
• Role of NGOs
• Special Products
• ACP concern for loss of preferences
• Singapore issues (investment, competition,

customs procedures; government procurement)

• Single undertaking

Uchtmann & Endres, Hoff, Hauser 120

Where to Now Post-Cancun

• More bilaterals and regional FTAs likely
• Election cycles dictate earliest possible conclusion = late

2005 (2007 or 2009 probably more likely)

• U.S. budget deficit will have to be addressed in 2005
• EU must broaden liberalization (while phasing out EBA

exceptions)

• US and Japan have to prepare their agricultural

constituencies for liberalization

• How much of the G-22 will hang together? Whither the

Cairns Group? Can they cooperate?

• Expiration of Peace Clause to bring WTO cases in 2004
• Need to continue capacity building in LDCs (policy

analysis, negotiating, and competitiveness)